Tap the PPP program to solve the housing shortage

THE Philippines’ chronic shortage of what is loosely defined as “affordable housing” attracted a bit of public attention a few weeks ago when Vice President Leni Robredo was handed the job of chairperson of the Housing and Urban Development Coordinating Committee by President Rodrigo Duterte. After a couple of press conferences and supportive calls from various relevant parties for the idea that the government should (again) attempt to create a Department of Housing, the issue has seemed to fade again.

The shortage of adequate housing has been a chronic problem for long. The misguided belief that creating new, superfluous government agencies is an actual solution to anything is also a chronic problem of the Philippines, too.

The HUDCC already encompasses six “key shelter agencies,” which is probably four or five more than the country actually needs to plan, finance, create, and populate affordable housing. The government, in fact, should not actually have to devote very much in the way of administrative or financial resources at all to the housing problem; the private-sector real estate industry is one of the country’s largest and most energetic business sectors, and yet beyond some lip service from the vice president and other relevant personalities, is hardly being encouraged to apply any of its vast abilities to reducing or eliminating the shortage of homes.

If the private sector were handed the job of solving the housing crunch, it would be solved, probably before Duterte’s term ends. The problem is, of course, that the private sector real estate industry is not a non-profit business; making affordable housing an attractive proposition to companies that are doing very well building and selling high-end real estate is a challenge. That challenge could be met, however, if the government deploys another poorly used asset, its Public-Private Partnership program.

Using the PPP program for housing makes sense for several reasons. A 2011 report by the United Nations Human Settlements Program (UN-HABITAT) pointed out that while there are certainly risks involved – such as higher overall public costs, the risk of reduced government accountability, and developing contracts that are acceptable to both the public and attractive to potential investors – PPP programs for housing are a ‘natural fit,’ and where they have been managed effectively, they have been successful; the report cites faster development, improved public services, and financial gains from freeing resources for other government requirements as the main advantages of the approach.

From a public perspective, although housing projects do not dispel the biggest criticism against PPP programs in general – that the “bid premium” framework adds unnecessary costs to the public – there is in the Philippines a sense that quality rather than economy should be prioritized, and that the private sector is more capable of providing that. As one rather grimly illustrative example of that, in 2014 Typhoon Ruby struck the area that had been affected by Typhoon Yolanda nearly a year earlier, where many people were still housed in temporary shelters. A common meme that appeared in various forms in the social media after the passing of Typhoon Ruby was a comparison of photos of destroyed “bunkhouses” built by the Department of Public Works and Highways, and intact replacement housing built by private organizations such as the GMA Foundation and SM Cares.

From a supply perspective, PPP potentially offers a lucrative investment; with high demand and the prospects of a relatively secure revenue stream through rents or amortizations, housing is comparatively more attractive than other traditional PPP offerings such as highways or other civil engineering works where the return on investment might be less secure.

Development of PPP for housing projects was discussed several times by the PPP Center under the previous administration, but did not move beyond informal conversations with developers and other government authorities. An executive from one developer that aspires to serving the low- and medium-income segments, Axeia Development Corporation, explained the problem in simple terms.

“We focus on affordable housing and are already working closely with Pag-Ibig and other agencies to find ways to serve this market,” Rommel Ramirez, Axeia’s vice president of sales and marketing, said in an interview in late 2014. “There is a great need for affordable housing, obviously, and we’re always looking out for opportunities. But we are businessmen. We just can’t go into something with a lot of uncertainty. “With PPP, it’s not really clear where our return would be coming from. That part of the framework hasn’t been put together yet.”

That should be the easy part; with the backlog of housing estimated to be about 5.5 million units and growing, finding residents that would provide an income stream of rent or amortization payments does not seem like it would be terribly difficult, or require much imagination. The bureaucratic resources to develop attractive investment programs for affordable housing developers are already in place; the government ought to fully utilize those resources instead of creating new ones, if the goal is truly to provide more and better housing for Filipinos and not simply to create more useless government jobs.